Absolute advantage

A country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it.

Absolute advantage, theory of:

Theory stating that trade between nations occurs when one nation is absolutely more productive than other nations in the production of a good; according to Adam Smith, nations should export those goods for which they possess an absolute advantage and import goods for which other nations possess an absolute advantage.

Absolute poverty

A statistical measure of poverty that uses a fixed benchmark, such as money income, to identify a poverty line. Distinguished from relative poverty, below which people are said to be poor.

Absolutism

The principle of absolute government, the governed having no share in administration.

Accommodating transaction:

Transaction undertaken by a central bank solely to accommodate autonomous transactions; also called compensatory transaction.

Accounting reserves:

Reserves used by firms for foreseeable future expenses.

Acculturation:

Process of understanding and learning how to operate in a new culture.

Acquisition strategy:

Form of foreign direct investment involving the purchase of existing assets in a foreign country.

Act to Regulate Commerce of 1887

The federal law that gave rise to the Interstate Commerce Commission in response to monopoly practices of the railroads.

Active income:

Income generated by active business operations such as production, marketing, and distribution.

Ad valorem tariff

A tariff levied as proportion of the value of an imported good.

Ad valorem tariff:

Tax assessed as a percentage of the market value of an imported good.

Adjustable peg:

Feature of the Bretton Woods system by which a country had a limited right to adjust the value of its currency in terms of gold.

Administrative trade policies

Administrative policies typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

Adverse selection:

The market failure that happens when only buyers (or only sellers) know the quality of each unit under exchange.

Advised letter of credit:

Letter of credit in which the seller's bank advises the seller about the credit-worthiness of the bank issuing the letter of credit.

Affiliated bank:

Partly owned, separately incorporated overseas banking operation of a home country bank.

Affirmative action:

A government program to promote actively the employment of protected classes of people rather than merely forbidding discrimination against them.

Aggressive goal behavior:

Behavior based on the cultural belief that material possessions, money, and assertiveness underlie motivation and reflect the goals that a person should pursue.

Aid to Families with Dependent Children (AFDC)

As the cornerstone of the U.S. welfare system, AFDC, created by the Social Security Act (1935), provides cash benefits to assist needy families with children under the age of 18. Paid by federal-state contract in which the federal government pays a 50 to 66 percent share of the program costs.

America 2000

The Bush Administration's precursor to Goals 2000.

American Federation of Labor-Congress of Industrial Organizations (AFL-CIO)

A voluntary federation of over 100 national and international unions operating in the United States. The AFL-CIO was created to represent the affiliated unions in the creation and execution of broad national and international policies and in coordinating a wide range of joint activities.

American selling price:

A method of calculating US import duties, under which those for certain categories of products—benzenoid chemicals, rubber footwear, canned clams, and wool-knit gloves-were computed by multiplying the tariff rate not by the price of the imported product, as is standard practice, but instead by the (usually much higher) price of the US product with which the import competed. This typically resulted in a much higher effective tariff. The United States agreed in the MTN, or Tokyo Round, to phase out ASP, effective in 1981.

Andean Pact

A 1969 Agreement between Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.

Andean Pact:

Customs union composed of Bolivia, Colombia, Ecuador, Peru, and Venezuela.

Antidumping (AD) investigation:

An investigation instituted by an importing country in response to a claim that a foreign supplier is selling merchandise at "less than fair value." (See "dumping.") In the United States, if the Department of Commerce finds dumping has occurred, and the US International Trade Commission finds that US firms have been materially injured, the law provides that customs officials levy an additional import duty equal to the calculated price discrepancy. GATT Article VI authorizes such measures. The Uruguay Round antidumping code, signed in 1994, aims to standardize and discipline national government practices.

Antidumping duty:

Tax on imported goods designed to protect domestic firms from sales of imported goods at less than their cost of production or at prices less than they sell for in their home markets.

Antidumping regulations

Regulations designed to restrict the sale of goods for less than their fair market price.

Antitrust law:

Public policy that prohibits monopolies and collusion among firms to inhibit competition.

Applied research:

Research directed to a specific practical aim.

Arbitrage

The purchase of securities in one market for immediate resale in another to profit from a price discrepancy.

Arbitrage:

Riskless purchase of a product in one market for immediate resale in a second market in order to profit from price differences between the markets.

Arbitration:

Dispute resolution technique in which both parties agree to submit their cases to a private individual or body for resolution.

Arm's length test:

Test imposed by the Internal Revenue Service to determine the appropriateness of transfer prices; reflects the price that one independent company would charge a second for a good or service.

Arrow's Paradox

The demonstration by economist Kenneth Arrow that the rules of democracy, particularly the principles of majority rule and equality of voting, do not necessarily produce logically consistent policy choices. Indeed, policy contradictions can occur when as few as three people or factions each have different policy preferences and each person's preference ordering counts the same. A process of political decision making is required to break the intellectual deadlock.

ASEAN (Association of South East Asian Nations)

Formed in 1967, an attempt to establish free trade area between Brunei Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Asia Pacific Economic Cooperation (APEC) forum:

An informal grouping of 18 Asian and Pacific Rim nations that provides a forum for discussing economic and trade issues. The members include Australia, Brunei Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Philippines, Singapore, South Korea, Taiwan, Thailand, and the United States. Originally, meetings were at the ministerial level; however, the November 1993 meeting, hosted by President Clinton in Seattle, brought together the heads of state of almost all members. At the 1994 summit, the leaders agreed to eliminate barriers to trade and investment among industrialized members by 20 10 and among all members by 2020.

Asia Pacific Economic Cooperation Group (APEC)

Established in 1989 to encourage economic cooperation in Asia/Pacific region. Includes 18 nations bordering the region, including the United States, Canada, Australia, New Zealand, Mexico, and Chile.

Asian Development Bank

A multilateral development bank whose primary aims are to promote economic and social development in the Asian and Pacific region by lending funds and providing technical cooperation to countries in the region.

Assigned arrangement:

Management arrangement in which one partner in a strategic alliance assumes primary responsibility for the operations of the alliance.

Association of South East Asian Nations (ASEAN)

A regional alliance of countries located in South East Asia whose mission is to foster economic growth, social progress, and cultural development in the region.

Association of South East Asian Nations (ASEAN):

Organization that promotes free trade among Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Autonomous transaction:

Transaction undertaken in the economic self-interest of a market participant.

return to top

Technique used to check for translation errors; after one person translates a document from language A to language B, a second person translates the document from B back to A to check if the intended message is actually being sent.

Baker Plan:

Plan developed in 1985 by U.S. Treasury Secretary James Baker to solve the international debt crisis; stressed debt rescheduling, tight controls over domestic monetary and fiscal policies, and continued loans to debtor nations.

Balance of payments (BOP) accounting system:

Accounting system that records commercial transactions between the residents of one country and residents of other countries.

Balance of payments accounts

National accounts that track both payments to and receipts from foreigners.

Balance on merchandise trade:

Difference between a country's merchandise exports and imports.

Balance on services trade:

Difference between a country's service exports and imports.

Balance sheet hedge:

Technique for eliminating translation exposure in which a firm matches its assets and liabilities denominated in a given currency on a consolidated basis.

Banker's acceptance:

Time draft that has been endorsed by a bank, signifying the bank's promise to guarantee payment at the designated time.

Bankruptcy law:

Public policy to offer debtors a fresh start when they are burdened with debt beyond reasonable hope of recovery, and to allow creditors to recover as much of their losses as possible.

Barriers to entry

Factors that make it difficult or costly for firms to enter an industry or market.

Barter

The direct exchange of goods or services between two parties without a cash transaction.

Barter:

Form of countertrade involving simultaneous exchange of goods or services between two parties.

Basic balance:

Sum of the current account balance plus net long-term capital investment.

Basic research:

Research undertaken for its own sake, without thought of commercial applications.

Beggar-thy-neighbor policies:

Domestic economic policies that ignore the economic damage done to other countries.

Benchmarking:

Process of legally and ethically studying how other firms do something in a high-quality way and then either imitating or improving on their methods.

Bilateral netting:

Netting of transactions between two business units.

Bill of exchange

An order written by an exporter instructing an importer, or an importer's agent, to pay a specific amount of money at a specified time.

Bill of lading (or draft)

A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title.

Bill of lading:

International trade document that serves (1) as a contract between the exporter and the transporter and (2) as a title to the exported goods.

Board of directors:

The body established to protect shareholders' interest in a corporation, and charged with developing broad policies and selecting top-level personnel.

Brady Handgun Violence Prevention Act

Popularly known as the Brady Bill, it is designed as a first step to register all handguns bought and sold in the United States.

Brady Plan:

Plan developed in 1989 by U.S. Treasury Secretary Nicholas Brady to solve the international debt crisis; involves writing off a portion of the debtor nations' debts or repurchase of their debts at less that face value.

Branch bank:

Overseas banking operation of a home country bank that is not separately incorporated.

A 1944 conference in which representatives of 40 countries met to design a new international monetary system.

Brown vs. Board of Education (1954)

Landmark Supreme Court decision holding that the separation of children by race in public schools is unconstitutional, violating the equal protection clause of the Fourteenth Amendment.

Budget deficit

An excess of expenditure flow over income flow.

Bureaucracy:

An organization that carries out day-to-day policy, uses standardized procedures, has a hierarchy, and is based on specialized duties.

Bureaucratic controls

Achieving control through the establishment of a system of rules and procedures.

Bureaucratic law:

Legal system based on interpretations, actions, and decisions of government employees.

Burke-Hartke quota bill:

Legislation introduced in Congress in 1971, widely interpreted as reflecting a major swing toward protectionism. Its provisions included broad-ranging import quotas and measures to discourage overseas investment by multinational firms based in the United States.

Business environment:

The pattern of external factors that affect a business or other organization's performance.

Business ethics:

Company practices and activities that are expected or looked on favorably by society, though they are not codified by law.

Buy-back:

Form of countertrade in which a firm is compensated in the form of goods produced by equipment or technology that it has sold to another firm.

BV:

Abbreviation used in the Netherlands to refer to a privately held, limited-liabi1ity firm.

Cairns Group:

return to top

Group of major agricultural exporting nations, led by Argentina, Australia, Canada, and the United States, that lobbies for reductions in agricultural subsidies.

Call option:

Publicly traded contract granting the owner the right, but not the obligation, to buy a specific amount of foreign currency at a specified price at a stated future date.

Capacity planning:

Deciding how many customers a firm will be able to serve at a given time.

In the balance of payments, records transactions involving the purchase or sale of assets.

Capital account:

BOP account that records capital transactions between residents of one country and those of other countries.

Capital gain:

The excess over purchase value realized from the sale of a capital asset.

Capital:

Produced goods that are used to produce other goods.

Capitalism

An economic system that permits the private ownership of the means of production.

Capitalism:

An economic system that depends mainly on private enterprise to invest in productive resources and to use them to make useful products at affordable cost.

Caribbean Basin Initiative (CB1):

Program developed by the United States to spur the economic development of countries in the Caribbean Basin; allows duty-free importation of selected goods into the United States fi7om these countries.

CARICOM

An association of English-speaking Caribbean states that are attempting to establish a customs union.

Cartel:

An association of firms to establish monopoly power through price fixing and other anti-competitive means.

Caste system

A system of social stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime.

Categorical logic

A welfare policy logic where a government action may be invoked when an accredited government agency must first find that a client belongs to a category eligible for government service or assistance, such as being poor, disabled, unemployed, or elderly, before receiving public assistance.

Centralized cash depository:

Entity controlled by a parent corporation that coordinates worldwide cash flows of its subsidiaries and pools their cash reserves.

Centralized depository

The practice of centralizing corporate cash balances in a single depository.

Centrally Planned economy (CPE):

Economy in which government planners determine price and productions levels for individual firms.

The most senior manager in a company, with authority over other employees.

Chaebol:

Any of the large business conglomerates that dominate the Korean economy.

Channel length

The number of intermediaries that a product has to go through before it reaches the final consumer.

Channel length:

Number of stages in a distribution channel.

Chapter 11:

A section of the U.S. bankruptcy code that allows managers to reorganize a failing company while protected by a court from the people and organizations to whom it owes money.

Charter schools

An institutional arrangement designed to break the monopoly power held by educational authorities by allowing more than one organization to offer public education in the community.

Checks and Balances

Constitutional doctrine that provides for each of the three branches of government to exercise powers granted to the other two branches, such as when a president (chief executive) vetoes legislation or nominates judges to serve in the district, appellate, and supreme courts.

Chlorofluorocarbons (CFCOs)

Chemical compound that is believed to deplete the layer of ozone in the upper atmosphere.

Citistates

Geographic clusters of related industries, supported by networks of local world-class research institutes, specialized business services, a work force with specialized skills, and demanding and knowledgeable local consumers who set the pace for global markets.

Civil law system

A system of law based on a very detailed set of written laws and codes.

Law based upon detailed codification of permissible and non-permissible activities; world's most common form of legal system.

Civil law:

The body of law concerned with private rights of individuals such as a breach of contract or personal injury.

Civil rights or liberties:

Legally secured immunities from state interference in certain spheres of action, such as conscience, speech, worship, publication, association, and assembly.

A tendency for individuals to perceive themselves in terms of their class background.

Class system

A system of social stratification in which social status is determined by the family into which a person is born and subsequent socioeconomic achievement. Mobility between classes is possible.

Clayton Act of 1914

The federal law that extended the Sherman Act's prohibition against monopolies and price discrimination. Further, it exempted labor unions from antitrust laws and limited the jurisdiction of courts in issuing injunctions against labor organizations.

Clean Air Act

A federal statute to protect public health and welfare from the effects of air pollution. Through this act national air quality standards and specific automobile emission standards were established.

Clean Water Act

A federal statute on restoring and maintaining the chemical, physical, and biological integrity of the nation's waters.

Clearinghouse accounts:

Accounting system used to facilitate international countertrade; a firm must balance its overall countertrade transactions but need not balance any single countertrade transaction.

German system that provides for cooperation between management and labor in running a business.

Corporate governance in which employers and employees share in decision marking.

Cohesion fund:

Means of funneling economic development aid to countries whose per capita GDP is less than 90 percent of the EU average.

Collective bargaining:

Process used to make agreements between management and labor unions.

Collectivism

An emphasis on collective goals as opposed to individual goals.

Collectivism:

Cultural belief that the group comes first.

COMECON

Now-defunct economic association of Eastern European communist states headed by the former USSR.

Comity, principle of:

Principle of international law that one country will honor and enforce within its own territory the judgements and decisions of foreign courts.

Command economy

An economic system where the allocation of resources, including determination of what goods and services should be produced, and in what quantity, is planned by the government.

Command economy:

A planned economy where crucial economic decisions are made to a large extent by government, not market forces.

Commodity agreement:

Agreement created by major producers and consumers of a good to control production and prices of that good.

Commodity cartel:

Cartel created by producers of a good to control production and prices of that good.

Common law system

A system of law based on tradition, precedent, and custom. When law courts interpret common law, they do so with regard to these characteristics.

Common law:

Law that forms the foundation of the legal system in Anglo-American countries; based on cumulative findings of judges in individual cases.

Common law:

Law made by judges, as distinct from statutory law.

Common market

A group of countries committed to (1) removing all barriers to the free flow of goods, services, and factors of production between each other and (2) the pursuit of a common external trade policy.

Common market:

Form of regional economic integration that combines features of a customs union with elimination of barriers inhibiting the movement of factors of production among members.

Communism

An economic system that is based on public ownership of all productive wealth and much consumption wealth.

Communism:

The radical form of socialism used to describe an economic system where the government has a monopoly on power and runs a command economy.

Communist totalitarianism

A version of collectivism advocating that socialism can only be achieved through a totalitarian dictatorship.

Communists

Those who believe socialism can only be achieved through revolution and totalitarian dictatorship.

Community Action Programs (CAP)

War on Poverty programs to develop centers of community leadership and civic participation in poor communities.

Comparative advantage

A general principle explaining the condition under which mutually profitable trade between two economic regions can occur.

Comparative advantage

The theory that countries should specialize in the production of goods and services they can produce most efficiently. A country is said to have a comparative advantage in the production of such goods and services.

Comparative advantage, theory of:

Theory stating that trade between countries occurs when one country is relatively more productive than others in the production of a good.

Comparative advantage:

Relative efficiency in production of a particular product or class of goods. Trade theory holds that a country should export those goods in which it has the greatest comparative advantage and import those goods in which it has the greatest comparative disadvantage, regardless of its general level of productivity or its overall labor costs relative to other countries.

Compensatory transaction:

See accommodating transaction.

Competition policy

Regulations designed to promote competition and restrict monopoly practices.

Compound tariff:

Tax that combines elements of an ad valorem tariff and a specific tariff.

Comprehensive alliance:

Strategic alliance in which participants agree to perform together multiple stages of the process by which goods or services are brought to market.

Confirmed letter of credit:

Letter of credit in which the seller's bank adds its promise to pay should the issuing bank fail to pay the seller.

Confiscation:

Involuntary transfer of property, with little or no compensation, from a privately owned firm to the host government.

Conglomerate merger:

A merger between firms operating in separate markets.

Conglomerate:

Firm that uses a strategy of unrelated diversification.

Conservatism:

An approach to economics and politics that views society as difficult to change arbitrarily, and that wants to limit the role of government to a few necessary spheres.

Consolidated financial statement:

A financial statement combining the accounting records of a parent corporation and all its subsidiaries into a single set of statements denominated in single currency.

Consolidation method:

Technique used to consolidate accounting records of subsidiaries in which the parent company's ownership stake is more than 50 percent.

Consumer products:

Goods and services sold for use by individual consumers.

Consumer sovereignty:

The idea that consumers decide what items will be produced and how they will be distributed.

Contingency fee:

Type of payment for legal services in which the fee paid is based on the size of monetary payments awarded to the client.

Contract:

An agreement, enforceable by law, between two or more parties to do or refrain from doing something.

Control framework:

Managerial and organizational processes used to keep a firm on target toward its strategic goals.

Control standard:

Desired level of a performance component a firm is attempting to control.

Control:

Process of monitoring and regulating activities in a firm so that targeted measures of performance are achieved or maintained.

Controlled foreign corporation (CFC):

Foreign corporation in which certain U.S. shareholders (each of which must own at least 10 percent of the foreign corporation's stock) cumulatively own at least 50 percent of the foreign corporation's stock.

Controller:

Managerial position in an organization given specific responsibility for financial control.

Controlling interest

A firm has controlling interest in another business entity when it owns more than 50 percent of the entity's voting stock.

Convergence criteria:

Conditions that must be met by EMU members in order to participate in the EU's single currency program, including numerical limits on members’ inflation, interest rates, currency values, budget deficits, and outstanding national debts; designed to force convergence of participants' monetary and fiscal policies.

Convertible currencies:

Currencies that are freely traded and accepted in international commerce; also called hard currencies.

Cooperative:

An organization of people who pool resources to buy or sell something, in which profits are distributed among members according to the business they do.